The regulation of capex in water

In this paper, the author provides a critique of the approaches adopted by Ofwat (the regulator of the water industry for England and Wales) with respect to the regulation of capex. The paper criticises the approach adopted by Ofwat of seeking to “get prices right” by setting forward looking price caps that attempt to estimate the efficient level of costs going forward. The paper then goes on to critique the comparative efficiency techniques applied in the process of determining water companies' price caps and argues for the establishment of a longer-term framework for the regulation of capex.